Chapter 2 - The Accounting Cycle: During the Period

Chapter 2
The Accounting Cycle: During the Period

REVIEW QUESTIONS
Question 2-1 (LO 2-1)
External transactions are transactions between the company and a separate economic entity.
Internal transactions do not include an exchange with a separate economic entity. Purchasing
supplies from a local vendor is classified as an external transaction.

Question 2-2 (LO 2-1)

1. Use source documents to identify accounts affected by external transactions.
2. Analyze the impact of the transaction on the accounting equation.
3. Assess whether the transaction results in a debit or a credit to the account
balance.
4. Record the transaction.
5. Post the transaction to the T-accounts in the general ledger.
6. Prepare a trial balance.

Question 2-3 (LO 2-2)

Dual effect refers to each transaction having an effect on at least two accounts of the accounting
equation such that the accounting equation will always be in balance. If an economic event increases
(decreases) one side of the equation, then it also increases (decreases) the other side of the equation
by the same amount, or, it increases one account and decreases another account on the same side of
the equation.

Question 2-4 (LO 2-2)

Assets = Liabilities + Stockholders’ equity
(a) Increase = Increase + No change
(b) Decrease = No change + Decrease
(c) Increase = No change + Increase
(d) No change* = No change + No change

* One asset (equipment) increases while another asset (cash) decreases.

Question 2-5 (LO 2-2)

Jerry is not correct. While it is possible for a transaction to increase one account and decrease
another, dual effect simply indicates that at least two accounts will always be affected. However, the
accounting equation must always remain in balance. It is not possible for one side of the equation to

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-1
Chapter 2 - The Accounting Cycle: During the Period

increase while the other side decreases.

Answers to Review Questions (continued)

Question 2-6 (LO 2-3)
Accounts Normal balance
Assets Debit
Liabilities Credit
Stockholders’ equity Credit
Revenues Credit
Expenses Debit

Question 2-7 (LO 2-3)

Jenny is not correct. Any account can be debited or credited. Since an asset has a normal debit
balance, it would be debited when it increases and credited when it decreases. Similarly, since a
liability has a normal credit balance, it would be credited when it increases and debited when it
decreases.

Question 2-8 (LO 2-3)

Accounts Increase
(a) Cash Debit
(b) Salaries payable Credit
(c) Utilities expense Debit
(d) Service revenue Credit

Question 2-9 (LO 2-3)

Accounts Decrease*
(a) Cash Credit
(b) Salaries payable Debit
(c) Utilities expense Credit
(d) Service revenue Debit

* Answers are opposite of those in Question 2-8

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2-2 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Answers to Review Questions (continued)

Question 2-10 (LO 2-3)
These statements are consistent. Retained earnings has three components – revenues, expenses,
and dividends. Changing the balance of any of these components changes the balance of retained
earnings. Retained earnings increases with a credit and decreases with a debit. Since expenses
reduce retained earnings, an increase to an expense decreases retained earnings.

Question 2-11 (LO 2-4)

A journal provides a chronological record of all transactions affecting a firm. A journal entry is
used to describe the format for recording a transaction.

Question 2-12 (LO 2-4)

Date Debit Credit
Account Name . . . . . . . . . . . . . . . . . . . . . . Amount
Account Name . . . . . . . . . . . . . . . Amount
(Description of transaction)

Question 2-13 (LO 2-4)

In each journal entry, the sum of all amounts debited equals the sum of all amounts credited.

Question 2-14 (LO 2-4)

(a) Debit Credit
Cash 1,200
Service Revenue 1,200
(Receive cash from providing services)

(b) Debit Credit

Rent Expense 500
Cash 500
(Pay rent for the current month)

(c) Debit Credit

Building 10,000
Notes Payable 10,000
(Purchase building with note payable)

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-3
Chapter 2 - The Accounting Cycle: During the Period

Answers to Review Questions (continued)

Question 2-15 (LO 2-4)
(a) Purchase supplies by paying cash of $20,000.
(b) Provide services to customer on account for $30,000.
(c) Pay cash on accounts payable of $10,000.

Question 2-16 (LO 2-5)

A T-account is an informal means to show the balance in an account. The left side is referred to
as a debit and the right side is referred to as a credit.

Question 2-17 (LO 2-5)

Posting is the process of transferring the debit and credit information from the journal to
individual accounts in the general ledger.

(a) Supplies Cash

20,000 20,000

(b) Accounts
Receivable Service Revenue
30,000 30,000

(c) Accounts Payable Cash

10,000 10,000

Question 2-18 (LO 2-6)

The general ledger is the collection of A
chart of accounts is a listing of all account names.

Question 2-19 (LO 2-6)

A trial balance is a list of all accounts and their balances at a particular date. Balance refers to the
fact that the sum of the accounts with debit balances should equal the sum of the accounts with credit
balances.

Question 2-20 (LO 2-6)

Not necessarily. While total debits equaling total credits is a good indication that all accounts
have been appropriately accounted for, the accounts could contain offsetting errors. For example, if
one account with a debit (credit) balance is understated by the same amount that another account
with a debit (credit) balance is overstated, the trial balance will show equal debit and credit totals.

© The McGraw-Hill Companies, Inc., 2014

2-4 Financial Accounting, 3e
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BRIEF EXERCISES
Brief Exercise 2-1 (LO 2-1)
Proper order:
(c) Use source documents to identify accounts affected by external
transactions.
(d) Analyze the impact of the transaction on the accounting equation.
(b) Assess whether the impact of the transaction results in a debit or
credit to the account balance.
(f) Record transactions using debits and credits.
(a) Post the transaction to the T-account in the general ledger.
(e) Prepare a trial balance.

Brief Exercise 2-2 (LO 2-2)

Possible
Assets = Liabilities + Stockholders’ Equity (Yes/No)
(a) Increase = Decrease + No change No
(Cash ↑) (Accounts Payable ↓)

(b) No change = Increase + Increase No

(Salaries Payable ↑) (Service Revenues ↑)

(c) Decrease = No Change + Decrease Yes

(Cash ↓) (Advertising Expense ↑)

Brief Exercise 2-3 (LO 2-2)

Total Liabilities and
Total Assets Stockholders’ Equity
Cash $ 7,200 Accounts Payable $ 1,700
Supplies 2,100 Salaries Payable 4,300
Prepaid Rent 3,200 Notes Payable 18,000
Land 9,000 Stockholders’ Equity 13,500
Equipment 16,000
$37,500 $37,500

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-5
Chapter 2 - The Accounting Cycle: During the Period

Brief Exercise 2-4 (LO 2-2)

Assets = Liabilities +
(a) +$50,000 = $0 + +$50,000
+$42,000 = +
(b) $0 $0
$42,000
(c) +$35,000 = +$35,000 + $0
(d) $5,000 = $0 + $5,000

Brief Exercise 2-5 (LO 2-3)

Account Debit Credit
Asset +
Liability − +
Common Stock − +
Retained Earnings − +
Dividend + −
Revenue − +
Expense + −

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2-6 Financial Accounting, 3e
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Brief Exercise 2-6 (LO 2-3)

(a) The balance of an asset account increases with a debit and decreases with a
credit.
(b) The balance of a liability account increases with a credit and decreases with a
debit.
s with a credit and
decreases with a debit.
(d) The balance of a revenue account increases with a credit and decreases with a
debit.
(e) The balance of an expense account increases with a debit and decreases with a
credit.

Brief Exercise 2-7 (LO 2-4)

(a) Debit Credit
Equipment 15,000
Notes Payable 15,000
(Purchase equipment with note payable)

(b)
Supplies 600
Cash 600
(Purchase office supplies for cash)

(c)
Rent Expense 800
Cash 800
(Pay rent for the current month)

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-7
Chapter 2 - The Accounting Cycle: During the Period

Brief Exercise 2-8 (LO 2-4)

(a) Debit Credit
Cash 17,000
Service Revenue 17,000
(Provide services for cash)

(b)
Prepaid Insurance 4,200
Cash 4,200
(Purchase prepaid insurance with cash)

(c)
Equipment 20,000
Cash 20,000
(Purchase equipment with cash)

(d)
Cash 30,000
Notes Payable 30,000
(Obtain bank loan)

Brief Exercise 2-9 (LO 2-5)

1. Cash
13,000 8,200
4,400 1,900
3,500 5,500
5,300

2. Postings on the left side (or debit side) of the cash T-account represent increases to
cash, such as receiving cash from customers, selling assets, borrowing money, and
issuing stock.
3. Postings on the right side (or credit side) of the cash T-account represent decreases
to cash, such as paying cash for rent, supplies, equipment, employee salaries,
utilities, repayment of debt, and dividends.

© The McGraw-Hill Companies, Inc., 2014

2-8 Financial Accounting, 3e
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Brief Exercise 2-10 (LO 2-2, 2-3, 2-4, 2-5)

Assets = Liabilities + Equity

(a) +$30,000 = $0 + +$30,000
(b) +$20,000 = +$20,000 + $0
(c) $7,000 = $0 + $7,000

(a) Debit Credit

Cash 30,000
Service Revenue 30,000
(Provide services for cash)

(b)
Supplies 20,000
Accounts Payable 20,000
(Purchase office supplies on account)

(c)
Salaries Expense 7,000
Cash 7,000
(Pay salaries for the current month)

Cash Service Revenue

0 0
(a) 30,000 30,000 (a)
7,000 (c)
23,000 30,000

Accounts
Supplies Payable Salaries Expense
0 0 0
(b) 20,000 20,000 (b) (c) 7,000
20,000 20,000 7,000

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-9
Chapter 2 - The Accounting Cycle: During the Period

Brief Exercise 2-11 (LO 2-6)

Trial Balance

Accounts Debit Credit

Cash $ 6,100
Accounts Receivable 4,400
Prepaid Rent 900
Accounts Payable $ 2,000
Salaries Payable 700
Common Stock 6,200
Retained Earnings 2,000
Dividends 500
Service Revenue 7,100
Salaries Expense 3,000
Rent Expense 2,000
Advertising Expense 1,100
Totals $18,000 $18,000

Brief Exercise 2-12 (LO 2-6)

Trial Balance

Accounts Debit Credit

Cash $ 7,300
Accounts Receivable 2,100
Office Equipment 10,400
Accounts Payable $ 3,900
Unearned Revenue 1,100
Common Stock 11,000
Retained Earnings 3,900
Dividends 600
Service Revenue 4,500
Salaries Expense 3,200
Utilities Expense 800
Totals $24,400 $24,400

© The McGraw-Hill Companies, Inc., 2014

2-10 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

EXERCISES
Exercise 2-1 (LO 2-1)

1. d.
2. b.
3. a.
4. e.
5. c.

Exercise 2-2 (LO 2-2)

Assets = Liabilities +
1. Increase = No effect + Increase
2. Increase = Increase + No effect
3. Increase = No effect + Increase
4. Decrease = No effect + Decrease
5. Decrease = No effect + Decrease
6. No effect* = No effect + No effect

* One asset (cash) increases while another asset (accounts receivable) decreases.

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-11
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-3 (LO 2-2)

Dual Effect
1. Issue 10,000 shares of common stock Assets
in exchange for $32,000 in cash. increase equity increases
2. Purchase land for $19,000. A note Assets Liabilities
payable is signed for the full amount. increase increase
3. Purchase storage containers for One asset (containers) increases
$8,000. and another asset (cash) decreases
4. Hire three employees for $2,000 per No effect on the accounting
month. equation
5. Receive cash of $12,000 in rental fees Assets
for the current month. increase equity increases
6. Purchase office supplies for $2,000 Assets Liabilities
on account. increase increase
7. Pay employees $6,000 for the first Assets
decrease equity decreases

© The McGraw-Hill Companies, Inc., 2014

2-12 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-4 (LO 2-2)

Dual Effect
1. Paint houses in the current month for Assets
$15,000 on account. increase equity increases
2. Purchase painting equipment for One asset (equipment) increases
$16,000 cash. and another asset (cash) decreases
3. Purchase office supplies on account Assets Liabilities
for $2,500. increase increase
4. Pay employee salaries of $3,200 for Assets
the current month. decrease equity decreases
5. Purchase advertising to appear in the Assets
current month, $1,200. decrease equity decreases
6. Pay office rent of $4,400 for the Assets
current month. decrease equity decreases
7. Receive $10,000 from customers One asset (cash) increases and another
in (1) above. asset (accounts receivable) decreases
8. Receive cash of $5,000 in advance Assets Liabilities
from a customer that plans to have his increase increase
house painted in the following month.

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-13
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-5 (LO 2-2)

Transaction Balance
Retained earnings, April 1 $13,000
1. Issue common stock for cash, $11,000 0
2. Provide services to customers on account, $8,500. +8,500
3. Provide services to customers in exchange for cash, $3,200. +3,200
4. Purchase equipment and pay cash, $7,600. 0
5. Pay rent for April, $1,100. −1,100
6. Pay employee salaries for April, $3,500. −3,500
7. Pay dividends to stockholders, $2,000. −2,000
Retained earnings, April 30 $18,100

Exercise 2-6 (LO 2-3)

Debit or Credit Account
1. Debit Cash
2. Credit Service Revenue
3. Debit Salaries Expense
4. Credit Accounts Payable
5. Debit Equipment
6. Credit Retained Earnings
7. Debit Utilities Expense
8. Debit Accounts Receivable
9. Debit Dividends
10. Credit Common Stock

© The McGraw-Hill Companies, Inc., 2014

2-14 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-7 (LO 2-3)

Account Account
Debited Credited
Example: Purchase equipment in exchange for Equipment Cash
cash.
1. Pay a cash dividend. Dividends Cash
2. Pay rent in advance for the next three months. Prepaid Cash
Rent
3. Provide services to customers on account. Accounts Service
Receivable Revenue
4. Purchase office supplies on account. Supplies Accounts
Payable
5. Pay salaries for the current month. Salaries Cash
Expense
6. Issue common stock in exchange for cash. Cash Common
Stock
7. Collect cash from customers for services provided Cash Accounts
in (3) above. Receivable
8. Borrow cash from the bank and sign a note. Cash Notes
Payable
Utilities Cash
Expense
10. Pay for office supplies purchased in (4) above. Accounts Cash
Payable

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-15
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-8 (LO 2-4)

(1) Debit Credit

Equipment 23,400
Cash 23,400
(Purchase equipment with cash)

(2)
Cash 6,800
Service Revenue 6,800
(Provide services for cash)

(3)
Rent Expense 1,300
Cash 1,300
(Pay current month’s rent)

(4)
Supplies 1,000
Accounts Payable 1,000
(Purchase office suppliers on account)

(5)
Salaries Expense 2,100
Cash 2,100
(Pay current month’s salaries)

© The McGraw-Hill Companies, Inc., 2014

2-16 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-9 (LO 2-4)

1. Purchase equipment with cash, $8,800.
2. Provide services to customers on account, $3,200.
3. Pay current month’s salaries, $1,900.
4. Receive cash from customers in advance of services, $1,500.
5. Pay dividends to stockholders, $900.

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-17
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-10 (LO 2-4)

February 2 Debit Credit
Advertising Expense 700
Cash 700
(Pay advertising for current month)

February 7
Supplies 1,300
Accounts Payable 1,300
(Purchase beauty supplies on account)

February 14
Cash 2,900
Service Revenue 2,900
(Provide beauty services for cash)

February 15
Salaries Expense 900
Cash 900
(Pay salaries for current month)

February 25
Accounts Receivable 1,000
Service Revenue 1,000
(Provide beauty services on account)

February 28
Utilities Expense 300
Cash 300
(Pay utilities for current month)

© The McGraw-Hill Companies, Inc., 2014

2-18 Financial Accounting, 3e
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Exercise 2-11 (LO 2-4)

March 1 Debit Credit
Cash 21,000
Common Stock 21,000
(Issue common stock)

March 5
Cash 9,000
Notes Payable 9,000
(Obtain bank loan)

March 10
Equipment 25,000
Cash 25,000
(Purchase construction equipment for cash)

March 15
Advertising Expense 1,100
Cash 1,100
(Purchase advertising for current month)

March 22
Accounts Receivable 18,000
Service Revenue 18,000
(Provide construction services on account)

March 27
Cash 13,000
Accounts Receivable 13,000
(Receive cash on account)

March 28
Salaries Expense 6,000
Cash 6,000
(Pay salaries for current month)

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-19
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-12 (LO 2-4)

Corrections

External Transaction Accounts Debit Credit

1. Owners invest $15,000 in the Cash 15,000
company and receive common stock. Common Stock 15,000

2. Receive cash of $4,000 for services Cash 4,000

provided in the current period. Service Revenue 4,000

3. Purchase office supplies on account, Supplies 300

$300. Accounts Payable 300

4. Pay $600 for next month’s rent. Prepaid Rent 600

Cash 600

5. Purchase office equipment with cash Equipment 2,200

of $2,200. Cash 2,200

Note: Accounts in blue are corrected items.

Accounts in black need no correction.

© The McGraw-Hill Companies, Inc., 2014

2-20 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-13 (LO 2-4)

Corrections

External Transaction Accounts Debit Credit

1. Pay cash dividends of $800 to Dividends 800
stockholders. Cash 800

2. Provide services on account for Accounts Receivable 3,400

customers, $3,400 Service Revenue 3,400

3. Pay a $500 utilities bill for the current Utilities Expense 500
period. Cash 500

4. Receive cash of $400 from previously Cash 400

billed customers. Accounts Receivable 400

5. Pay for supplies previously purchased Accounts Payable 1,200

on account, $1,200. Cash 1,200

Note: Accounts in blue are corrected items.

Accounts in black need no correction.

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-21
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-14 (LO 2-5)

Cash
5,000
(1) 15,000 9,000 (2)
(4) 8,000 3,000 (3)
(6) 4,000 1,000 (5)
7,000 (7)
12,000

Transaction (8) is not posted to the Cash T-account because a purchase on account
does not involve cash.

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2-22 Financial Accounting, 3e
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Exercise 2-15 (LO 2-5)

Cash Accounts Receivable
3,400 4,200
(3) 10,200 1,000 (4) (1) 8,400 10,200 (3)
(6) 1,100 3,700 (5)
10,000 2,400

Supplies Accounts Payable

400 3,500
(2) 2,300 (5) 3,700 2,300 (2)
2,700 2,100

Unearned
Revenue Service Revenue
300 0
1,100 (6) 8,400 (1)
1,400 8,400

Advertising
Expense
0
(4) 1,000
1,000

Exercise 2-16 (LO 2-5)

1. Provide services to customers for cash, $20,000.
2. Provide services to customers on account, $5,000.
3. Receive cash from customers on account, $4,000.
4. Purchase supplies on account, $6,000.
5. Pay employees for current salaries, $14,000.
6. Pay cash on account, $7,000.

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-23
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-17 (LO 2-6)

Sooner Company
Trial Balance
April 30
Accounts Debit Credit
Cash $ 3,900
Accounts Receivable 6,100
Prepaid Rent 7,400
Land 60,000
Accounts Payable $ 4,300
Unearned Revenue 2,300
Common Stock 40,000
Retained Earnings 23,000
Service Revenue 25,400
Supplies Expense 9,400
Salaries Expense 8,200
Totals $95,000 $95,000

Exercise 2-18 (LO 2-6)

Cobras Incorporated
Trial Balance
March 31
Accounts Debit Credit
Cash $ 3,500
Accounts Receivable 4,200
Supplies 1,000
Prepaid Insurance 1,200
Buildings 55,000
Accounts Payable $ 2,200
Salaries Payable 500
Common Stock 35,000
Retained Earnings 17,800
Service Revenue 19,500
Salaries Expense 6,400
Utilities Expense 3,700
Totals $75,000 $75,000

© The McGraw-Hill Companies, Inc., 2014

2-24 Financial Accounting, 3e
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Exercise 2-19 (LO 2-4, 2-5, 2-6)

Requirement 1
(1) Debit Credit
Cash 42,000
Common Stock 42,000
(Issue common stock)

(2)
Land 24,000
Notes Payable 24,000
(Purchase land with note payable)

(3)
Equipment 9,000
Cash 9,000
(Purchase storage containers)

(4)
No entry

(5)
Cash 13,000
Service Revenue 13,000
(Receive cash for current month’s rent)

(6)
Supplies 3,000
Accounts Payable 3,000
(Purchase office supplies on account)

(7)
Salaries Expense 9,000
Cash 9,000
(Pay salaries for the current month)

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-25
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-19 (continued)

Requirement 2

Cash Common Stock

0 0
(1) 42,000 42,000 (1)
9,000 (3)
(5) 13,000
9,000 (7)
37,000 42,000

Land Notes Payable

0 0
(2) 24,000 24,000 (2)
24,000 24,000

Equipment Service Revenue

0 0
(3) 9,000 13,000 (5)
9,000 13,000

Accounts
Supplies Payable
0 0
(6) 3,000 3,000 (6)
3,000 3,000

Salaries Expense
0
(7) 9,000
9,000

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2-26 Financial Accounting, 3e
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Exercise 2-19 (concluded)

Requirement 3
Green Wave Company
Trial Balance

Accounts Debit Credit

Cash $37,000
Supplies 3,000
Land 24,000
Equipment 9,000
Accounts Payable $ 3,000
Notes Payable 24,000
Common Stock 42,000
Service Revenue 13,000
Salaries Expense 9,000
Totals $82,000 $82,000

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-27
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-20 (LO 2-4, 2-5, 2-6)

Requirement 1
(1) Debit Credit
Accounts Receivable 20,000
Service Revenue 20,000
(Provide painting on account)
(2)
Equipment 21,000
Cash 21,000
(Purchase painting equipment)
(3)
Supplies 3,500
Accounts Payable 3,500
(Purchase office supplies on account)
(4)
Salaries Expense 4,200
Cash 4,200
(Pay salaries for the current month)
(5)
Advertising Expense 1,000
Cash 1,000
(Pay advertising for the current month)
(6)
Rent Expense 5,400
Cash 5,400
(Pay rent for the current month)
(7)
Cash 15,000
Accounts Receivable 15,000
(Receive cash on account)
(8)
Cash 6,000
Unearned Revenue 6,000
(Receive cash in advance for painting)

© The McGraw-Hill Companies, Inc., 2014

2-28 Financial Accounting, 3e
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Exercise 2-20 (continued)

Requirement 2
Accounts Receivable Service Revenue
Beg. 1,700 0 Beg.
(1) 20,000 20,000 (1)
15,000 (7)
6,700 20,000

Equipment Cash
Beg. 7,400 Beg. 26,100
(2) 21,000 21,000 (2)
4,200 (4)
1,000 (5)
5,400 (6)
(7) 15,000
(8) 6,000
28,400 15,500

Supplies Accounts Payable

Beg. 500 1,200 Beg.
(3) 3,500 3,500 (3)
4,000 4,700

Salaries Expense Advertising Expense

Beg. 0 Beg. 0
(4) 4,200 (5) 1,000
4,200 1,000

Unearned
Rent Expense Revenue
Beg. 0 0 Beg.
(6) 5,400 6,000 (8)
5,400 6,000

Common Stock Retained Earnings

25,000 Beg. 9,500 Beg.

25,000 9,500

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-29
Chapter 2 - The Accounting Cycle: During the Period

Exercise 2-20 (concluded)

Requirement 3
Boilermaker House Painting Company
Trial Balance

Accounts Debit Credit

Cash $15,500
Accounts Receivable 6,700
Supplies 4,000
Equipment 28,400
Accounts Payable $ 4,700
Unearned Revenue 6,000
Common Stock 25,000
Retained Earnings 9,500
Service Revenue 20,000
Salaries Expense 4,200
Advertising Expense 1,000
Rent Expense 5,400
Totals $65,200 $65,200

© The McGraw-Hill Companies, Inc., 2014

2-30 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

PROBLEMS: SET A
Problem 2-1A (LO 2-2)
Stockholders’
Transaction Assets = Liabilities + Equity
1. Issue common stock in
Increase = No effect + Increase
exchange for cash.
2. Purchase business
Increase = Increase + No effect
supplies on account.
3. Pay for legal services
Decrease = No effect + Decrease
for the current month.
4. Provide services to
Increase = No effect + Increase
customers on account.
5. Pay employee salaries
Decrease = No effect + Decrease
for the current month.
6. Provide services to
Increase = No effect + Increase
customers for cash.
7. Pay for advertising for
Decrease = No effect + Decrease
the current month.
8. Repay loan from the
Decrease = Decrease + No effect
bank.
9. Pay dividends to
Decrease = No effect + Decrease
stockholders.
10. Receive cash from
customers in (4) No effect* = No effect + No effect
above.
11. Pay for supplies
Decrease = Decrease + No effect
purchased in (2) above.

*One asset (cash) increases and another asset (accounts receivable) decreases

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-31
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-2A (LO 2-2)

Stockholders’
Transaction Assets = Liabilities + Equity
1. Provide services to
customers on account, +$1,600 = $0 + +$1,600
$1,600.
2. Pay $400 for current = +
−$400 $0 −$400

3. Hire a new employee, who

will be paid $500 at the end $0 = $0 + $0
of each month.
4. Pay $100 for advertising = +
−$100 $0 −$100
aired in the current period.
5. Purchase office supplies for +$400 = +
$0 $0
cash. −$400
6. Receive cash of $1,000
+$1,000 = +
from customers in (1) $0 $0
−$1,000
above.
7. Obtain a loan from the bank = +
+$7,000 +$7,000 $0
for $7,000.
8. Receive a bill of $200 for
utility costs of the current $0 = +$200 + −$200
period.
9. Issue common stock for
+$10,000 = $0 + +$10,000
$10,000 cash.
10. Pay $500 to employee in (3) = +
−$500 $0 −$500
above.
Totals $17,600 = $7,200 + $10,400

© The McGraw-Hill Companies, Inc., 2014

2-32 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-3A (LO 2-3)

Normal Balance
Accounts Type of Account (Debit or Credit)
1. Salaries Payable Liability Credit
2. Common Stock Credit
3. Prepaid Rent Asset Debit
4. Buildings Asset Debit
5. Utilities Expense Expense Debit
6. Equipment Asset Debit
7. Rent Expense Expense Debit
8. Notes Payable Liability Credit
9. Salaries Expense Expense Debit
10. Insurance Expense Expense Debit
11. Cash Asset Debit
12. Service Revenue Revenue Credit

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-33
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-4A (LO 2-4)

Transactions for
July 3 Debit Credit
Accounts Receivable 500
Service Revenue 500
(Provide services on account)
July 6
Repairs and Maintenance Expense 450
Accounts Payable 450
(Receive maintenance on account)
July 9
Cash 500
Accounts Receivable 500
(Receive cash on account)
July 14
Notes Receivable 600
Cash 600
(Loan cash by accepting note receivable)
July 18
Advertising Expense 110
Cash 110
(Pay advertising for the current month)
July 20
Accounts Payable 450
Cash 450
(Pay cash on account)
July 27
No entry for Jake.
July 30
No entry for Jake.
July 31
Cash 600
Notes Receivable 600
(Receive cash on note receivable)

© The McGraw-Hill Companies, Inc., 2014

2-34 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-5A (LO 2-2, 2-4)

Transactions for Luke
July 3 Debit Credit
Repairs and Maintenance Expense 500
Accounts Payable 500
(Receive services on account)
July 6
Accounts Receivable 450
Service Revenue 450
(Provide services on account)
July 9
Accounts Payable 500
Cash 500
(Pay cash on account)
July 14
Cash 600
Notes Payable 600
(Borrow by signing note payable)
July 18
No entry for Luke.
July 20
Cash 450
Accounts Receivable 450
(Receive cash on account)
July 27
Cash 800
Service Revenue 800
(Provide services for cash)
July 30
Salaries Expense 300
Cash 300
(Pay salaries to employees)
July 31
Notes Payable 600
Cash 600
(Pay note payable)

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-35
 Chapter 2 - The Accounting Cycle: During the Period

Problem 2-5A (concluded)

Jake’s Lawn Maintenance Company Luke’s Repair Shop

Stockholders’ Stockholders’
Assets = Liabilities + Equity Assets = Liabilities + Equity

July 3 +$500 = $0 + +$500 $0 = +$500 + −$500

6 $0 = +$450 + −$450 +$450 = $0 + +$450
9 +$500
= $0 + $0 −$500 = −$500 + $0
−$500
14 +$600
= $0 + $0 +$600 = +$600 + $0
−$600
18 −$110 = $0 + −$110 $0 = $0 + $0
20 +$450
−$450 = −$450 + $0 = $0 + $0
−$450
27 $0 = $0 + $0 +$800 = $0 + +$800
30 $0 = $0 + $0 −$300 = $0 + −$300
31 +$600
= $0 + $0 −$600 = −$600 + $0
−$600

© The McGraw-Hill Companies, Inc., 2014

2-36 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-6A (LO 2-6)

Bruins Company
Trial Balance
November 30
Accounts Debit Credit
Cash $ 40,000
Accounts Receivable 50,000
Supplies 1,100
Prepaid Rent 3,000
Equipment 60,800
Accounts Payable $ 17,000
Salaries Payable 5,000
Interest Payable 3,000
Unearned Revenue 9,000
Notes Payable 30,000
Common Stock 50,000
Retained Earnings 35,000
Dividends 1,100
Service Revenue 65,000
Salaries Expense 30,000
Rent Expense 12,000
Interest Expense 3,000
Supplies Expense 7,000
Utilities Expense 6,000
Totals $214,000 $214,000

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-37
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-7A (LO 2-4, 2-5, 2-6)

Requirement 1
Entries are numbered for posting.
(1) March 1 Debit Credit
Cash 3,000
Common Stock 3,000
(Issue common stock)
(2) March 3
Equipment 2,700
Notes Payable 2,700
(Purchase sewing equipment with note payable)
(3) March 5
Rent Expense 600
Cash 600
(Pay rent for current month)
March 7
No entry
(4) March 12
Supplies 130
Accounts Payable 130
(Purchase sewing supplies on account)
(5) March 15
Cash 800
Service Revenue 800
(Provide services for cash)
(6) March 19
Cash 700
Unearned Revenue 700
(Receive cash in advance from customer)
(7) March 25
Unearned Revenue 700
Service Revenue 700
(Provide services to customer)
(8) March 30
Utilities Expense 95
Cash 95
(Pay utilities for current month)
(9) March 31
Dividends 150
Cash 150
(Pay dividends)

© The McGraw-Hill Companies, Inc., 2014

2-38 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-7A (continued)

Requirements 2 and 3

Cash Supplies Equipment

(1) 3,000 600 (3) (4) 130 (2) 2,700
(5) 800 95 (8) 130 2,700
(6) 700 150 (9)
3,655 Accounts Payable Unearned Revenue
130 (4) (7) 700 700 (6)
130 0

Notes Payable Common Stock Dividends

2,700 (2) 3,000 (1) (9) 150
2,700 3,000 150

Service Revenue Rent Expense Utilities Expense

800 (5) (3) 600 (8) 95
700 (7)
1,500 600 95

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-39
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-7A (concluded)

Requirement 4
Ute Sewing Shop
Trial Balance
March 31

Accounts Debit Credit

Cash $3,655
Supplies 130
Equipment 2,700
Accounts Payable $ 130
Unearned Revenue 0
Notes Payable 2,700
Common Stock 3,000
Dividends 150
Service Revenue 1,500
Rent Expense 600
Utilities Expense 95
Totals $7,330 $7,330

© The McGraw-Hill Companies, Inc., 2014

2-40 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-8A (LO 2-4, 2-5, 2-6)

Requirement 1
Entries are numbered for posting.
(1) Sep. 1 Debit Credit
Cash 4,700
Service Revenue 4,700
(Provide services for cash)
(2) Sep. 2
Land 6,400
Notes Payable 6,400
(Purchase land with note payable)
(3) Sep. 4
Advertising Expense 500
Accounts Payable 500
(Receive invoice for current advertising)
(4) Sep. 8
Accounts Receivable 6,000
Service Revenue 6,000
(Provide services on account)
(5) Sep. 10
Supplies 1,100
Accounts Payable 1,100
(Purchase supplies on account)
(6) Sep. 13
Notes Payable 4,000
Cash 4,000
(Pay note payable)
(7) Sep. 18
Cash 5,000
Accounts Receivable 5,000
(Receive cash on account)
(8) Sep. 20
Rent Expense 900
Cash 900
(Pay rent for current month)
(9) Sep. 30
Utilities Expense 2,000
Cash 2,000
(Pay utilities for current month)

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-41
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-8A (continued)

(10) Sep. 30
Salaries Expense 4,000
Cash 4,000
(Pay salaries for current month)
(11) Sep. 30
Dividends 1,100
Cash 1,100
(Pay dividends)

© The McGraw-Hill Companies, Inc., 2014

2-42 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-8A (continued)

Requirements 2 and 3

Cash Accounts Receivable Supplies

Bal. 6,500 4,000 (6) Bal. 2,500 5,000 (7) Bal. 7,600
(1) 4,700 900 (8) (4) 6,000 (5) 1,100
(7) 5,000 2,000 (9)
4,000 (10)
1,100 (11)
4,200 3,500 8,700

Land Accounts Payable Notes Payable

Bal. 11,200 7,500 Bal. (6) 4,000 3,000 Bal.
(2) 6,400 500 (3) 6,400 (2)
1,100 (5)
17,600 9,100 5,400

Common Stock Retained Earnings Dividends

9,000 Bal. 8,300 Bal. (11) 1,100
9,000 8,300 1,100

Service Revenue Salaries Expense Rent Expense

4,700 (1) (10) 4,000 (8) 900
6,000 (4)
10,700 4,000 900

Advertising Expense Utilities Expense

(3) 500 (9) 2,000
500 2,000

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-43
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-8A (continued)

Requirement 4
Pirates Incorporated
Trial Balance
September 30
Accounts Debit Credit
Cash $ 4,200
Accounts Receivable 3,500
Supplies 8,700
Land 17,600
Accounts Payable $ 9,100
Notes Payable 5,400
Common Stock 9,000
Retained Earnings 8,300
Dividends 1,100
Service Revenue 10,700
Salaries Expense 4,000
Rent Expense 900
Advertising Expense 500
Utilities Expense 2,000
Totals $42,500 $42,500

© The McGraw-Hill Companies, Inc., 2014

2-44 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-9A (LO 2-4, 2-5, 2-6)

Requirement 1
Entries are numbered for posting.
(1) December 1 Debit Credit
Rent Expense 900
Cash 900
(Pay rent for December)
(2) December 5
Cash 2,800
Service Revenue 2,800
(Provide services for cash)
(3) December 8
Cash 10,000
Notes Payable 10,000
(Borrow by signing note payable)
(4) December 12
Cash 3,500
Accounts Receivable 3,500
(Receive cash from customers on account)
(5) December 13
Cash 20,000
Common Stock 20,000
(Issue shares of common stock)
(6) December 15
Salaries Expense 1,200
Cash 1,200
(Pay salaries for December)
(7) December 17
Advertising Expense 1,000
Cash 1,000
(Purchase advertising for December)
(8) December 22
Accounts Receivable 3,200
Service Revenue 3,200
(Provide services on account)
December 23
No journal entry required

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-45
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-9A (continued)

(9) December 26
Equipment 28,500
Cash 28,500
(Purchase equipment)
(10) December 28
Accounts Payable 1,500
Cash 1,500
(Pay cash on account)
(11) December 31
Dividends 2,000
Cash 2,000
(Pay dividends)

© The McGraw-Hill Companies, Inc., 2014

2-46 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-9A (continued)

Requirements 2 and 3
Cash Accounts Receivable Prepaid Insurance
Bal. 9,200 900 (1) Bal. 4,500 3,500 (4) Bal. 400
(2) 2,800 1,200 (6) (8) 3,200
(3)10,000 1,000 (7)
(4) 3,500 28,500 (9)
(5) 20,000 1,500 (10)
2,000 (11)
10,400 4,200 400

Equipment Land Accounts Payable

Bal. 24,100 Bal. 170,000 (10) 1,500 3,300 Bal.
(9) 28,500
52,600 170,000 1,800

Notes Payable Common Stock Retained Earnings

50,000 Bal. 120,000 Bal. 14,100 Bal.
10,000 (3) 20,000 (5)
60,000 140,000 14,100

Dividends Service Revenue Advertising Expense

Bal. 5,000 75,000 Bal. Bal. 11,000
(11) 2,000 2,800 (2) (7) 1,000
3,200 (8)
7,000 81,000 12,000

Salaries Expense Rent Expense

Bal. 28,300 Bal. 9,900
(6) 1,200 (1) 900
29,500 10,800

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-47
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-9A (continued)

Requirement 4
RiverHawk Expeditions
Trial Balance
December 31
Accounts Debit Credit
Cash $ 10,400
Accounts Receivable 4,200
Prepaid Insurance 400
Equipment 52,600
Land 170,000
Accounts Payable $ 1,800
Notes Payable 60,000
Common Stock 140,000
Retained Earnings 14,100
Dividends 7,000
Service Revenue 81,000
Advertising Expense 12,000
Salaries Expense 29,500
Rent Expense 10,800
Totals $296,900 $296,900

© The McGraw-Hill Companies, Inc., 2014

2-48 Financial Accounting, 3e
 Chapter 2 - The Accounting Cycle: During the Period

PROBLEMS: SET B
Problem 2-1B (LO 2-2)
Stockholders’
Transaction Assets = Liabilities + Equity
1. Obtain a loan at the
Increase = Increase + No effect
bank
2. Purchase a machine to
use in operations for No effect* = No effect + No effect
cash.
3. Provide services to
Increase = No effect + Increase
customers for cash.
4. Pay employee salaries
Decrease = No effect + Decrease
for the current month.
5. Repay loan from the
Decrease = Decrease + No effect
bank in (1) above.
6. Customers pay cash in
Increase = Increase + No effect
advance of services.
7. Pay for maintenance costs
Decrease = No effect + Decrease
in the current month.
8. Pay for advertising in the
Decrease = No effect + Decrease
current month.
9. Purchase office supplies
Increase = Increase + No effect
on account.
10. Provide services to
Increase = No effect + Increase
customers on account.
11. Pay dividends to
Decrease = No effect + Decrease
stockholders.

*One asset (machine) increases and another asset (cash) decreases

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-49
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-2B (LO 2-2)

Stockholders’
Transaction Assets = Liabilities + Equity
1. Issue common stock in
+$15,000 = $0 + +$15,000
exchange for cash, $15,000.
2. Obtain a loan from the bank = +
+$9,000 +$9,000 $0
for $9,000.
3. Receive cash of $1,200 in = +
+$1,200 +$1,200 $0
advance from customers.
4. Purchase supplies on account, = +
+$2,400 +$2,400 $0
$2,400.
5. Pay one year of rent in +$12,000
= $0 + $0
advance, $12,000. −$12,000
6. Provide services to customers = +
+$3,000 $0 +$3,000
on account, $3,000.
7. Repay $4,000 of the loan in = +
−$4,000 −$4,000 $0
(2) above.
8. Pay full amount for supplies = +
−$2,400 −$2,400 $0
purchased in (4) above.
9. Provide services to customers = +
$0 −$1,200 +$1,200
in (3) above.
10. Pay cash dividends of = +
−$1,000 $0 −$1,000
$1,000 to stockholders.
Totals $23,200 = $5,000 + $18,200

© The McGraw-Hill Companies, Inc., 2014

2-50 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-3B (LO 2-3)

Normal Balance
Accounts Type of Account (Debit or Credit)
1. Supplies Asset Debit
2. Advertising Expense Expense Debit
3. Prepaid Insurance Asset Debit
4. Supplies Expense Expense Debit
5. Accounts Payable Liability Credit
6. Equipment Asset Debit
7. Dividends Dividends Debit
8. Accounts Receivable Asset Debit
9. Retained Earnings Credit
10. Unearned Revenue Liability Credit
11. Service Revenue Revenue Credit
12. Utilities Payable Liability Credit

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-51
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-4B (LO 2-4)

Transactions for Eli Insurance Services
May 2 Debit Credit
Cash 300
Unearned Revenue 300
(Receive cash in advance from customer)
May 5
Repairs and Maintenance Expense 425
Accounts Payable 425
(Receive maintenance services on account)
May 7
Cash 500
Notes Payable 500
(Receive cash and sign note payable)
May 14
No entry for Eli.

May 19
Accounts Payable 425
Cash 425
(Pay cash on account)
May 25
Utilities Expense 135
Cash 135
(Pay utilities for the current month)
May 28
Unearned Revenue 300
Service Revenue 300
(Provide service previously paid)
May 31
Notes Payable 500
Cash 500
(Pay cash on note payable)

© The McGraw-Hill Companies, Inc., 2014

2-52 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-5B (LO 2-2, 2-4)

Transactions for Maintenance Services
May 2 Debit Credit
Prepaid Insurance 300
Cash 300
(Pay for insurance services in advance)
May 5
Accounts Receivable 425
Service Revenue 425
(Provide services on account)
May 7
Notes Receivable 500
Cash 500
(Loan cash and issue note receivable)
May 14
Supplies 200
Cash 200
(Purchase maintenance supplies with cash)
May 19
Cash 425
Accounts Receivable 425
(Receive cash on account)
May 25
No entry for Olivia.

May 28
Insurance Expense 300
Prepaid Insurance 300
(Received services paid in advance)
May 31
Cash 500
Notes Receivable 500
(Receive cash on note receivable)

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-53
 Chapter 2 - The Accounting Cycle: During the Period

Problem 2-5B (concluded)

Eli’s Insurance Services Olivia’s Maintenance Services

Stockholders’ Stockholders’
Assets = Liabilities + Equity Assets = Liabilities + Equity

+$300
May 2 +$300 = +$300 + $0 = $0 + $0
−$300
5 $0 = +$425 + −$425 +$425 = $0 + +$425
+$500
7 +$500 = +$500 + $0 = $0 + $0
−$500
+$200
14 $0 = $0 + $0 = $0 + $0
−$200
+$425
19 −$425 = −$425 + $0 = $0 + $0
−$425
25 −$135 = $0 + −$135 $0 = $0 + $0
28 $0 = −$300 + +$300 −$300 = $0 + −$300
+$500
31 −$500 = −$500 + $0 = $0 + $0
−$500

© The McGraw-Hill Companies, Inc., 2014

2-54 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-6B (LO 2-6)

Ducks Company
Trial Balance
September 30

Accounts Debit Credit

Cash $ 25,000
Accounts Receivable 14,000
Supplies 7,000
Prepaid Insurance 5,000
Equipment 28,000
Accounts Payable $ 7,000
Salaries Payable 4,000
Utilities Payable 1,100
Unearned Revenue 9,000
Common Stock 29,000
Retained Earnings 13,000
Dividends 4,000
Service Revenue 55,100
Salaries Expense 9,000
Insurance Expense 8,000
Advertising Expense 1,100
Supplies Expense 10,000
Entertainment Expense 6,000
Utilities Expense 1,100
Totals $118,200 $118,200

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-55
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-7B (LO 2-4, 2-5, 2-6)

Requirement 1
Entries are numbered for posting.
(1) June 1 Debit Credit
Cash 70,000
Notes Payable 70,000
(Obtain loan from bank)
(2) June 2
Cash 40,000
Common Stock 40,000
(Issue common stock)
(3) June 7
Equipment 75,000
Cash 75,000
(Purchase equipment)
(4) June 10
Supplies 8,000
Accounts Payable 8,000
(Purchase cleaning supplies on account)
(5) June 12
Cash 5,000
Service Revenue 5,000
(Provide car washes for cash)
(6) June 16
Salaries Expense 900
Cash 900
(Pay salaries to employees)
(7) June 19
Advertising Expense 500
Cash 500
(Pay for current advertising)
(8) June 23
Accounts Receivable 6,000
Service Revenue 6,000
(Provide car washes on account)

© The McGraw-Hill Companies, Inc., 2014

2-56 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-7B (continued)

(9) June 29
Salaries Expense 950
Cash 950
(Pay salaries to employees)
(10) June 30
Utilities Expense 1,400
Cash 1,400
(Pay current utility bill)
(11) June 30
Dividends 600
Cash 600
(Pay dividends to stockholders)

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-57
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-7B (continued)

Requirements 2 and 3
Cash Accounts Receivable Supplies
(1)70,000 75,000 (3) (8) 6,000 (4) 8,000
(2) 40,000 900 (6) 6,000 8,000
(5) 5,000 500 (7)
950 (9) Equipment Accounts Payable
1,400 (10) (3) 75,000 8,000 (4)
600 (11)
35,650 75,000 8,000

Notes Payable Common Stock Dividends

70,000 (1) 40,000 (2) (11) 600
70,000 40,000 600

Service Revenue Salaries Expense Advertising Expense

5,000 (5) (6) 900 (7) 500
6,000 (8) (9) 950
11,000 1,850 500

Utilities Expense
(10) 1,400
1,400

© The McGraw-Hill Companies, Inc., 2014

2-58 Financial Accounting, 3e
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-7B (concluded)

Requirement 4
Salukis Car Cleaning
Trial Balance
June 30

Accounts Debit Credit

Cash $ 35,650
Accounts Receivable 6,000
Supplies 8,000
Equipment 75,000
Accounts Payable $ 8,000
Notes Payable 70,000
Common Stock 40,000
Dividends 600
Service Revenue 11,000
Salaries Expense 1,850
Advertising Expense 500
Utilities Expense 1,400
Totals $129,000 $129,000

© The McGraw-Hill Companies, Inc., 2014

Solutions Manual, Chapter 2 2-59
Chapter 2 - The Accounting Cycle: During the Period

Problem 2-8B (LO 2-4, 2-5, 2-6)

Requirement 1
Entries are numbered for posting.
(1) Nov. 1 Debit Credit
Cash 13,000
Common Stock 13,000
(Issue common stock)
(2) Nov. 2
Equipment 3,500
Notes Payable 3,500
(Purchase equipment with note payable)
(3) Nov. 4
Supplies 1,000
Accounts Payable 1,000
(Purchase supplies on account)
(4) Nov. 10
Accounts Receivable 9,000
Service Revenue 9,000
(Provide services on account)
(5) Nov. 15
Accounts Payable 1,100
Cash 1,100
(Pay cash on account)
(6) Nov. 20
Salaries Expense 3,000
Cash 3,000
(Pay current salaries)
(7) Nov. 22
Cash 11,000
Service Revenue 11,000
(Provide services for cash)
(8) Nov. 24
Notes Payable 1,400
Cash 1,400
(Pay note payable)
(9) Nov. 26
Cash 7,000
Accounts receivable 7,000
(Receive cash on account)

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Problem 2-8B (continued)

(10) Nov. 28
Utilities Expense 1,100
Cash 1,100
(Pay utilities for current month)
(11) Nov. 30
Rent Expense 5,000
Cash 5,000
(Pay rent for current month)

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Problem 2-8B (continued)

Requirements 2 and 3
Cash Accounts Receivable Supplies
Bal. 3,200 1,100 (5) Bal. 600 7,000 (9) Bal. 700
(1) 13,000 3,000 (6) (4) 9,000 (3) 1,000
(7) 11,000 1,400 (8)
(9) 7,000 1,100 (10)
5,000 (11)
22,600 2,600 1,700

Equipment Accounts Payable Notes Payable

Bal. 9,400 2,000 Bal. (8) 1,400 4,000 Bal.
(2) 3,500 (5)1,100 1,000 (3) 3,500 (2)
12,900 1,900 6,100

Common Stock Retained Earnings Service Revenue

7,000 Bal. 900 Bal. 9,000 (4)
13,000 (1) 11,000 (7)
20,000 900 20,000

Salaries Expense Utilities Expense Rent Expense

(6) 3,000 (10) 1,100 (11) 5,000
3,000 1,100 5,000

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Problem 2-8B (continued)

Requirement 4
Buckeye Incorporated
Trial Balance
November 30
Accounts Debit Credit
Cash $22,600
Accounts Receivable 2,600
Supplies 1,700
Equipment 12,900
Accounts Payable $ 1,900
Notes Payable 6,100
Common Stock 20,000
Retained Earnings 900
Service Revenue 20,000
Salaries Expense 3,000
Utilities Expense 1,100
Rent Expense 5,000
Totals $48,900 $48,900

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Problem 2-9B (LO 2-4, 2-5, 2-6)

Requirement 1
Entries are numbered for posting.
(1) December 1-31 Debit Credit
Cash 27,400
Service Revenue 27,400
(Provide services for cash)
(2) December 4
Supplies 2,900
Accounts Payable 2,900
(Purchase supplies on account)
(3) December 8
Advertising Expense 3,200
Cash 3,200
(Purchase advertising for December)
(4) December 9
Accounts Payable 2,900
Cash 2,900
(Pay cash on account)
(5) December 12
Cash 5,000
Common Stock 5,000
(Issue shares of common stock)
(6) December 16
Accounts Payable 6,300
Cash 6,300
(Pay cash on account)
(7) December 19
Equipment 7,700
Cash 7,700
(Purchase equipment)
(8) December 22
Utilities Expense 4,500
Cash 4,500
(Pay utilities for current month)
(9) December 24
Cash 2,300
Unearned Revenue 2,300
(Receive cash in advance from customers)

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Problem 2-9B (continued)

December 27
No journal entry is required

(10) December 30
Salaries Expense 7,000
Cash 7,000
(Pay salaries for December)
(11) December 31
Dividends 3,000
Cash 3,000
(Pay dividends)

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Problem 2-9B (continued)

Requirements 2 and 3
Cash Supplies Prepaid Rent
Bal. 19,400 3,200 (3) Bal. 1,500 Bal. 7,200
(1) 27,400 2,900 (4) (2) 2,900
(5) 5,000 6,300 (6)
(9) 2,300 7,700 (7)
4,500 (8)
7,000 (10)
3,000 (11)
19,500 4,400 7,200

Equipment Buildings Accounts Payable

Bal. 83,700 Bal. 240,000 (4) 2,900 9,800 Bal.
(7) 7,700 (6) 6,300 2,900 (2)
91,400 240,000 3,500

Unearned Revenue Common Stock Retained Earnings

2,000 Bal. 125,000 Bal. 75,500 Bal.
2,300 (9) 5,000 (5)
4,300 130,000 75,500

Dividends Service Revenue Salaries Expense

Bal. 9,000 264,000 Bal. Bal. 65,000
(11) 3,000 27,400 (1) (10) 7,000
12,000 291,400 72,000

Advertising Expense Utilities Expense

Bal. 18,200 Bal. 32,300
(3) 3,200 (8) 4,500
21,400 36,800

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Problem 2-9B (continued)

Requirement 4
Thunder Cat Services
Trial Balance
December 31
Accounts Debit Credit
Cash $ 19,500
Supplies 4,400
Prepaid Rent 7,200
Equipment 91,400
Buildings 240,000
Accounts Payable $ 3,500
Unearned Revenue 4,300
Common Stock 130,000
Retained Earnings 75,500
Dividends 12,000
Service Revenue 291,400
Salaries Expense 72,000
Advertising Expense 21,400
Utilities Expense 36,800
Totals $504,700 $504,700

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ADDITIONAL PERSPECTIVES
Additional Perspective 2-1
Requirement 1
Entries are numbered for posting.
(1) July 1, 2015 Debit Credit
Cash 10,000
Common Stock 10,000
(Issue common stock to Suzie)
(2) July 1, 2015
Cash 10,000
Common Stock 10,000
(Issue common stock to Tony)
(3) July 1, 2015
Prepaid Insurance 4,800
Cash 4,800
(Purchase one-year insurance policy)
(4) July 2, 2015
Legal Fees Expense 1,500
Cash 1,500
(Pay legal fees for incorporation)
(5) July 4, 2015
Supplies (Office) 1,800
Accounts Payable 1,800
(Purchase office supplies on account)
(6) July 7, 2015
Advertising Expense 300
Cash 300
(Pay cash for advertising)
(7) July 8, 2015
Equipment (Bikes) 12,000
Cash 12,000
(Pay cash for mountain bikes)
(8) July 15, 2015
Cash 2,000
Service Revenue 2,000
(Receive cash for mountain bike clinic)

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Additional Perspective 2-1 (continued)

Requirement 1 (concluded)

(9) July 22, 2015

Cash 2,300
Service Revenue 2,300
(Receive cash for mountain bike clinic)
(10) July 24, 2015
Advertising Expense 700
Cash 700
(Pay cash for advertising)
(11) July 30, 2015
Cash 4,000
Unearned Revenue 4,000
(Receive cash in advance for kayak clinic)

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Additional Perspective P2-1 (continued)

Requirement 2

Cash Prepaid Insurance Supplies

(1) 10,000 4,800 (3) (3) 4,800 (5) 1,800
(2) 10,000 1,500 (4) 4,800 1,800
(8) 2,000 300 (6)
(9) 2,300 12,000 (7)
(11) 4,000 700 (10)
9,000 Equipment Accounts Payable
(7) 12,000 1,800 (5)
12,000 1,800

Unearned Revenue Common Stock Service Revenue

4,000 (11) 10,000 (1) 2,000 (8)
4,000 10,000 (2) 2,300 (9)
20,000 4,300

Advertising Expense Legal Fees Expense

(6) 300 (4) 1,500
(10) 700 1,500
1,000

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Additional Perspective 2-1 (concluded)

Requirement 3
Great Adventures, Inc.
Trial Balance
July 31, 2015
Accounts Debit Credit
Cash $ 9,000
Prepaid Insurance 4,800
Supplies 1,800
Equipment 12,000
Accounts Payable $ 1,800
Unearned Revenue 4,000
Common Stock 20,000
Service Revenue 4,300
Advertising Expense 1,000
Legal Fees expense 1,500
Totals $30,100 $30,100

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Additional Perspective 2-2

Requirement 1
Percentage change in total assets = ($1,756,053 1,950,802) / $1,950,802= -9.98%

Percentage change in net sales = ($3,475,802 3,120,065) / $3,120,065 = 11.40%

The company is getting smaller by asset size but sales are growing. The company may
be using its assets more efficiently.

Requirement 2
Percentage change in net income = ($232,108 151,705) / $151,705 = 53.00%

Profitability is increasing.

Requirement 3
American Eagle issued a small
amount of common stock in the most recent year.

Requirement 4
. Asset accounts,
such as cash, merchandise inventory, accounts receivable, and property and
equipment, increase with a debit. Liability accounts, such as accounts payable,
accrued rent, and other liabilities, increase with a credit.
accounts, such as common stock and retained earnings, also increase with a credit.

Requirement 5
The terms “debit” and “credit” are not shown in the income statement. Expense
accounts, such as cost of sales and selling, general, and administrative expenses,
increase with a debit. Revenue accounts, such as net revenue, increase with a credit.

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Additional Perspective 2-3

Requirement 1
Percentage change in total assets = ($477,974 531,539) / $531,539 = -10.08%

Percentage change in net sales = ($1,124,007 1,062,946) / $1,062,946 = 5.74%

The company is getting smaller by asset size but sales are growing. The company may
be using its assets more efficiently.

Requirement 2
Percentage change in net income = ($164,305 151,456) / $151,456 = 8.48%

Net income has increased more than the percentage of sales increase so expenses have
been managed at a stable level.

Requirement 3
Buckle did issue a small amount
of common stock in the most recent year.

Requirement 4
. Asset accounts,
such as cash, inventory, accounts receivable, and property and equipment, increase
with a debit. Liability accounts, such as accounts payable, accrued employee
compensation, and income taxes payable, increase with a credit.
accounts, such as common stock and retained earnings, also increase with a credit.

Requirement 5
The terms “debit” and “credit” are not shown in the income statement. Expense
accounts, such as cost of sales and selling, general, and administrative expenses,
increase with a debit. Revenue accounts, such as net sales, increase with a credit.

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Additional Perspective 2-4

American Eagle has a higher decline in terms of total assets, but greater growth in net
sales and net income. One reason for American Eagle could relate to the products
being offered. American Eagle may have found a better niche in the market for its
products, allowing the company to expand operations at a greater rate. This could
certainly explain the much higher growth in net income.

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Additional Perspective 2-5

What is the issue?
Larry should understand that if he reports the additional $75,000 of revenue, the
company will no longer report a loss, but a profit of $25,000 (ignoring any tax

Who are the parties affected?

Robert benefits from false reporting by maintaining the
a
desire to please
or maintaining good standing with creditors. Larry benefits from false reporting by
keeping his friendship with Robert, keeping his job for the longer-term, and getting a
free dinner tonight. However, if the false reporting is discovered by authorities, both
parties face legal penalties and suffer reputational damage.

What factors should Larry consider in making his decision?

As the accountant, Larry should understand that his responsibilities are to accurately
record and Larry must be aware that Robert may have
incentives for falsely reporting to Larry about the additional revenue. Without source
documents, an important step in the measurement process, Larry should not record
any transactions.

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Additional Perspective 2-6

(Note to instructor: Answers are based on items in September 29, 2012
annual report. Dollar amounts are in millions)

Requirement 1
Accounts receivable = $10,930. The accounts receivable account represents the
amount owed to the company by its customers.

Requirement 2
Accounts payable = $21,175. The accounts payable account represents the amount
owed by the company to its suppliers.

Requirement 3
Accrued expenses could include income taxes payable, salaries payable, interest
payable, and rent payable.

Requirement 4
Common stock = $16,422. The common stock account represents capital contributed
to the company by stockholders.

Requirement 5
Assets ($176,064) = Liabilities ($57,854) + Stockholders’ equity ($118,210)

Requirement 6
Net sales = $156,508. The period of net sales is for the year ended September 29,
2012.

Requirement 7
Expenses include cost of sales; research and development; selling, general, and
administrative; and provision for income taxes.

Requirement 8
Yes, the company’s revenues exceed expenses. The difference is net income
($41,733).

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Additional Perspective 2-7

For transaction (a):
Step 1. Analyze customer invoice.
Step 2. Determine assets increase and stockholders’ equity increases (and
revenues increase).
Step 3. Increase assets with a debit and increase revenues with a credit.
Step 4. Accounts Receivable 500
Service Revenue 500
(Provide services on account)

For transaction (b):

Step 1. Analyze employee paycheck.
Step 2. Determine assets decrease and stockholders’ equity decreases (and
expenses increase).
Step 3. Decrease assets with a credit and increase expenses with a debit.
Step 4. Salaries Expense 1,200
Cash 1,200
(Pay salary for the current month)

For transaction (c):

Step 1. Analyze purchase receipt for equipment.
Step 2. Determine one asset increases and another asset decreases.
Step 3. Increase assets with a debit and decrease assets with a credit.
Step 4. Equipment 2,700
Cash 2,700
(Purchase office equipment)

Step 5. All transactions are posted to the general ledger accounts.

Step 6. A trial balance is prepared using the balance of each general ledger account.
Total debits should equal total credits in the trial balance.

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